Global AI Selloff Deepens as Korea's Kospi Enters Bear Market, Systemic Risks Mount

The artificial-intelligence equity rout accelerated sharply in Asia on Thursday, pushing South Korea's benchmark KOSPI into a bear market and triggering trading halts, as mounting concerns over the debt-fueled buildout of AI infrastructure and signs of slowing revenue growth at key firms rattled investors globally.

South Korea's KOSPI index fell 7.57% to 5,554.22, its seventh consecutive daily loss and the longest losing streak since September 2024, according to multiple reports. The index has lost 20% of its value in barely a week, meeting the common definition of a bear market. Sell-side trading curbs known as sidecars were triggered on both the KOSPI and the smaller KOSDAQ in morning trade. The exchange then halted trading on the main board for 20 minutes at 12:38 p.m. local time after the index fell more than 8% from the previous close. Foreign investors sold a net 3.62 trillion won (about US$2.7 billion) of shares, according to the Korea JoongAng Daily as reported by Rio Times Online.

Japan's Nikkei 225 dropped 4.90% to 64,425.95, while the broader selloff extended to European and US markets, though with less severity. The S&P 500 managed a 0.3% gain on Thursday after falling 1.1% the prior day, while the Nasdaq edged up 0.1%. The Dow Jones Industrial Average rose 1% to its highest in a month, reflecting a rotation out of technology stocks.

**AI Credit Markets Flash Warning Signs**

The distress was most acute in AI-related credit markets. CoreWeave 2032 bonds issued just four months ago fell below 80 cents on the dollar, levels typically considered distressed debt, according to a Reuters report. The cost of insuring against default by major US AI firms has soared to record levels, the same report noted. In premarket trading Thursday, CoreWeave shares slid another 6-7% after imploding 15% the previous day, as its bonds continued to trade at distressed levels, according to ZeroHedge.

Anthropic disclosed third-quarter revenue of $16.8 billion, implying slowing growth, and its pre-IPO investor event failed to impress, per ZeroHedge. The report added that a Gartner study warning that $3.5 trillion of AI infrastructure spending could be exposed to impairment by 2030 was making the rounds among traders. Even strong results from TSMC — a fourth-quarter revenue guide of $52.3-54.3 billion against a street estimate of about $50 billion — failed to dispel the concerns, and the global selloff in semiconductors dragged the Philadelphia Semiconductor Index down 12% over six sessions.

**Safe Havens Surge as Growth Fears Replace Inflation Scare**

Despite a surprisingly strong rise in US producer prices — the largest gain in 4-1/2 years — Treasuries rallied sharply, with the 10-year yield falling 10 basis points to 5.08%, the lowest since September 23. The move marked one of the best days of the year for Treasuries, especially for maturities of 10 years and beyond, as investors sought the traditional "risk-free" asset. Bund yields also fell 11 basis points to 3.35%, the lowest in over a month.

The dollar slid, with the Bloomberg Dollar Spot Index down 0.3-0.4% and the Swiss franc leading G-10 gains. Gold jumped 1.3% to $4,158 per ounce, and silver rose 2.1%. Oil was mixed, with Brent crude dropping almost 2% to $104 on the risk-off tone.

**Korea's Record Chip Exports Contrast with Market Panic**

The selloff in Seoul was led by the country's two largest memory-chip makers. Samsung Electronics fell 9.48% to 210,000 won, and SK hynix fell 11.06% to about 1.26 million won, according to Rio Times Online. The declines came despite record export data: Korea's September chip exports hit a record US$60.5 billion, up 260.3% from a year earlier, and total exports reached a record US$121.1 billion, up 83.7%. Shipments to China rose 123.1% to US$26.06 billion. The selloff therefore reflects doubts about the sustainability of future profits rather than weak current demand, the report noted.

**Systemic Risk and Rotation**

The rout in AI-related credit markets raises the risk of a self-fulfilling doom loop, as selling in certain names casts a shadow over healthier credits, and downgrades or loss of investment-grade ratings could force further selling, according to the Reuters report. The report cautioned that while not yet at crisis point — as evidenced by the rebound in US stocks and bonds on Thursday — vigilance is required.

Wall Street's resilience masked a deep rotation. Chip stocks fell for a seventh day, their longest losing streak in four years, but the Dow rose to a one-month high. According to Deutsche Bank, as cited by Reuters, since mid-2024 the average length of rotations out of tech is 67 days, with an average tech drawdown of 16.6%.

**Latin American Exposure**

The Asia tech rout also raised questions for Latin American commodity exporters. On Thursday, the Brazilian real weakened 1.4% to 5.0970 per US dollar, while the Chilean peso firmed 0.4% and the Peruvian sol was nearly flat, according to Rio Times Online. The US-listed copper fund CPER slipped 0.53%. The report noted that a lasting slump in Asian chip demand could eventually cut Chinese industrial buying of Latin American copper, iron ore and other exports, but that current orders do not yet show such a turn.

Key events ahead include China's third-quarter GDP on October 19, the Bank of Korea rate decision on October 22, and the US Federal Reserve decision on October 28. Fed Chair Kevin Warsh, ECB President Christine Lagarde, and BoE Governor Andrew Bailey are among officials speaking at the IMF/World Bank meetings in Bangkok.